Thursday, April 28, 2011

my stock picks for 2011

My approach to buying stocks is the same as buying most other things: Buy quality ones that are on sale. Otherwise known as value investing, this involves buying stocks that are currently priced below its fair value. I have 3 criteria when buying stocks:

1. priced at 10% discount to its fair value
2. company has been in business for a considerable amount of time
3. it sells an important product or service

As to coming up with its fair value, I use Graham's number which involves multiplying (earnings per share) x (book value per share) x (22.5), then getting the square root of the result. So far I have only examined stocks in the PSEi which lists 30 stocks. Among those listed, only 3 meet my criteria:

1. JGS - ideal price at P24.5
2. RLC - ideal price at P13.5
3. URC - ideal price at P37.5

It is interesting to note that these companies are Gokongwei led and as of today, they sell for P24.1, P13.08 and P37.0 respectively. As long as these stocks remain below my ideal price, I will buy them. Once they go up beyond the margin of safety, I may have to evaluate other stocks outside the PSEi and see if there are bargains to be found.

When do I sell? I will only sell my stocks when I turn 65 or if the company is being mismanaged or if it becomes severely overvalued by the market. Happy investing!

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